EC Clamps Down On Tax Breaks For Italian Firms Participating In Trade Fairs

by Ulrika Lomas, for LawAndTax-News.com, Brussels

20 December 2004

The European Commission announced on Thursday that it has decided that special tax incentives for Italian companies taking part in trade fairs abroad (put in place by the 2004 budget) are illegal under EU state aid rules.

The tax break allows participants in trade fairs to exclude from their taxable income in Italy an amount corresponding to the costs involved with participation in trade exhibitions, on top of the ordinary deduction from their taxable income. Such costs may include advertising and promotion costs but must be related to displaying products at trade fairs abroad.

Following completion of an in-depth investigation, launched in March 2004, the Commission explained that as the objective of this tax advantage was to improve the trading conditions of Italian companies operating overseas, it appeared that only a limited group of beneficiaries being engaged in export-related activities could benefit from it, and that therefore it constituted an aid directly affecting cross-border competition and trade, including trade with other Member States.

As the aid was enacted without prior EC approval, the Commission has requested that the Italian government recover the aid illegally paid to the beneficiaries.

The only part of the scheme that was found to be compatible with existing state aid rules, concerned aid for SMEs not exceeding 50% of the costs arising from their first participation in a fair or exhibition with respect to a new market. The Commission accordingly announced that it would not oblige the Italian authorities to recover this part of the aid.

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